10 Sarbanes-Oxley a decade later.

• Author: Sweeney, Paul
• Position: Cover story

Remember the stock options backdating scandal? Reaching its apex in 2006, the scandal ensnared senior executives at more than 150 companies who engaged in the manipulation of stock-option grants. Taking advantage of lax reporting rules, grantees cherry-picked the lowest stock price during the previous 90 days before cashing out at higher stock prices and maximizing their take.

Using such methods, hundreds of top corporate officials at leading American companies were able to increase their income, in some cases by many millions of dollars. Several went to jail, including chief executives at Brocade Communications Systems Inc. and Comyerse Technology Inc., and dozens more resigned or were sent packing.

But one little-noted feature of the scandal, notes Peter Henning, a Wayne State University law professor and an expert on white-collar crime, was what actually put an end to the practice.

The death blow to this particular activity, Henning reports, was dealt by reporting requirements contained in the Sarbanes-Oxley Act of 2002. Under Section 403 of the law, senior executives must notify the U.S. Securities and Exchange Commission within three days of receiving, buying or selling stock, including stock options.

"If you look at the cases of stock-option backdating," Henning says, "they all occurred before 2002. It's likely the practice would have continued had not Sarbanes-Oxley stopped it dead in the water."

This important yet largely unheralded achievement of Sarbanes-Oxley is only one of many striking effects of the law described in interviews with a diverse array of sources, including financial executives, representatives of the Big Four accounting firms, former government regulators, forensic accountants, attorneys, academic experts and investor advocates, as well as one noted whistleblower. All were asked to comment on the major impact of the legislation as it turns 10 years old.

Despite criticism from free-market advocates and politicians of the conservative stripe that Sarbanes-Oxley has been costly to business and a poster child for regulatory overreach, a much-stated opinion of business and professional sources including defense lawyers tasked with pleading the cases of alleged violators of Sarbanes-Oxley--is that the law has had a salutary effect on business, commerce, finance, the accounting profession and the United States economy.

"Regardless of which partner you talk to at our firm and probably at all the largest ones as well, most would say that Sarbanes-Oxley has been incredibly beneficial," says Laura Cox-Kaplan, principal in charge of government and regulatory affairs at PwC and a former deputy assistant secretary for banking and finance at the U.S. Treasury Department.

Paul Regan, president of accountancy Hemming Morse in San Francisco and a pioneer forensic accountant, notes that "there's still plenty of fraud. But if we didn't have Sarbanes-Oxley, the misstatements would be significantly worse."

Barbara Roper, director of investor protection at the Consumer Federation of America, expresses reservations about the law's efficacy but only because of continued congressional tampering and persistent legal astment in the wake saults from disgruntled parties.

"Sarbanes-Oxley has clearly enhanced the integrity of the financial markets and the quality of financial reporting," she says. "My criticism is that the reforms are being eroded. It's chugging along but still facing challenges."

Signed into law a decade ago on July 30, 2002 by President George W. Bush, the Sarbanes-Oxley Act was enacted by spectacularly lopsided votes in both chambers of Congress: 423-3 in the House and 99-0 in the...